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Red Robin (RRGB) Up 3.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Red Robin (RRGB - Free Report) . Shares have added about 3.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Red Robin due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Red Robin's Q2 Earnings & Revenues Beat Estimates

Red Robin Gourmet Burgers reported second-quarter 2019 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Notably, the bottom line surpassed the consensus mark after reporting a miss in the preceding quarter. Following the quarterly results, shares of Red Robin increased 5.9% on Aug 23. In the past six months, the stock has surged 18.2% compared with the industry’s 18.7% growth.

Earnings & Revenue Discussion

Red Robin’s adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate of 31 cents. The bottom line also jumped 130.4% from the year-ago quarter number. Progress on the execution of the five pillars in the company’s strategic plan boosted its profitability.

Revenues came in at $308 million, marginally beating the Zacks Consensus Estimate of $307 million but declined 2.3% from the prior-year quarter. The downside can be primarily attributed to a decline in restaurant revenues.

Additionally, comparable restaurant revenues decreased 1.5% year over year (on constant-currency basis) due to a 6.4% decline in guest count, which overshadowed a 4.9% gain in average check. The increase in average guest check was on account of a 2.3% rise in menu mix and 2.6% hike in pricing.

Operating Results

Restaurant-level operating profit margin contracted 110 basis points (bps) to 18.2%. The decline was due to a 90-bps rise in labor costs and 50 bps increase in other restaurant operating costs. However, cost of sales margin declined 20 bps on account of decrease in waste and lower Tavern mix. Occupancy costs declined 10 basis points owing to restaurant closures.

Adjusted earnings before interest, taxes, and amortization (EBITDA) decreased to $25.5 million from $28.8 million a year ago.

Financial Highlights

As of Jul 14, 2019, Red Robin had cash and cash equivalents of $26.2 million compared with $18.6 million as of Dec 30, 2018. The company’s long-term debt amounted to $181.4 million as of Jul 14, 2019, compared with $193.4 million as of Dec 30, 2018.

As of Jul 14, 2019, Red Robin had outstanding borrowings under its credit facility of $180.5 million in addition to amounts issued under letters of credit of $7.4 million.

Guidance

For 2019, Red Robin expects earnings of 95 cents-$1.20 per share compared with $1.14-$1.77 projected earlier. The Zacks Consensus Estimate for the same is currently pegged at $1.25. The company continues to expect comparable restaurant revenue growth of down 1% to up 1%.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -280.64% due to these changes.

VGM Scores

At this time, Red Robin has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Red Robin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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